A Natural Step Network Case Study
Scandic operates 125 hotels throughout Europe and is the market leader in Scandinavia, with annual revenues of approximately $500 million. The company is publicly held and employs approximately 7,000 people. Scandic began implementing The Natural Step in 1994 and has achieved significant results with the program in both financial and ecological terms.
Founded in 1963 by Exxon as a motor hotel chain, Scandic was eventually sold to Ratos, Inc. in 1983. President and CEO Roland Nilsson was hired in 1992 to turn the company around after three years of consecutive losses to the order of $22 million. At that time, Scandic had little differentiation in the marketplace. For the previous 10 years, the company had pursued a strategy of seeking competitive advantage through tangible amenities such as room decor, color televisions, and ironing boards -- all of which had been quickly matched by competitors.
Scandic's market research showed that the basis for competition in the industry was increasingly shifting to intangible dimensions given this relative sameness of product offerings. A company's values and actions -- how it conducted business -- increasingly factored into consumer purchase decisions. In Sweden, for example, the number of consumers who were actively rejecting products on environmental grounds rose to 48% by 1994. "Increasingly we saw that people want to do business with companies they like and respect" notes Ola Ivarsson, Scandic's Director of Purchasing and Environmental Affairs.
Introduction to The Natural Step
In early 1994 Nilsson and his senior management team became convinced that the leaders in the market of tomorrow would demonstrate business practices that were good for the company and for society and would build consumer loyalty based on shared values. They saw an opportunity for Scandic to claim a leadership position in the hotel industry based on the concept of sustainability.
The management team had heard of The Natural Step from its activities in Sweden and invited Karl Henrik Robèrt to a meeting in February 1994. After this meeting the Executive Committee agreed to pursue sustainability as a strategic initiative using the TNS system conditions as a model. The committee placed one of its members -- Ivarsson -- in charge of the program. The Executive Committee committed the company to this course long term by issuing the following policy in April 1994:
"No company can avoid taking responsibility for the environment and focusing on environmental issues. Scandic shall, therefore, lead the way and work continuously to promote both a reduction in our environmental impact, and a better environment. Our goal is to be one of the most environmentally friendly companies in the hotel industry and to conduct our business on nature's terms."
Stage I: Building Knowledge
The following objectives were established by senior anagement for the program's first 18 months:
1. Imbed environmental priorities into business decision-making;
2. Improve resource efficiency while continually increasing quality;
3. Phase out use of materials harmful to the environment;
4. Share knowledge with employees, suppliers, and customers.
As with any new strategic initiative, Scandic committed to building internal competency before rolling the program out to line units. After the April announcement, the Executive Committee did a one-day training on TNS principles with Dr. Robèrt to ground themselves in the pedagogy. In June 1994 a working group combining Scandic and TNS staff began adapting TNS principles to Scandic's business and culture.
Scandic operates hotels in nine countries. Each hotel is its own profit center, with the manager evaluated by profit performance. Given the low margins and the highly competitive nature of the industry, a program for sustainability had to support managers in making good business decisions. It was very important to Scandic's senior executives that the program did not burden line managers with a new set of headquarter "rules," or create the perception of conflicting priorities. Sustainability had to be a strategic tool that served the business, or it would not work in the organization.
By September 1994 a training program had been developed and was presented to 40 line managers specifically selected for their management skills and interest in the program. The program was refined based on their input, and 25 members of the review team were recruited to be internal trainers, undergoing a three-day training with TNS staff. Scandic trainings are adapted to the regulatory conditions in each of the nine countries where Scandic does business to help employees develop local action plans. The trainings range from six hours to six days depending on the skills and needs of the participants and are augmented with seminars and study groups.
By November 1994 the training program was ready for introduction. To begin building an internal learning structure, an "Environmental Desk" was created at the corporate level and charged with initiating a training process called "The Environmental Dialogue" throughout the company. The word "dialogue" was consciously chosen to convey an atmosphere of learning and two-way communication. The program began with a company-wide-video dialogue between Nilsson and Robèrt, discussing the reasons behind the program and the actions to follow. This video was also shared with suppliers. By the end of 1995, all Scandic employees had been through training programs appropriate to their job.
Phase II: Action Programs
Scandic's managers embarked on a two-pronged approach to implementation: initiating visible changes at the corporate level to demonstrate commitment and stimulating local ideas that were then collected, shared, and quickly implemented.
Concurrent to the training process, each hotel created a local action program soliciting ideas from employees and suppliers. An "Environmental Networker" was appointed at each hotel to facilitate dialogue and idea exchange between interdependent departments. Trial and error were encouraged, and regional environmental managers met regularly to share learning and develop programs better addressed on the regional level. By late 1995 over 1,500 local activities were in implementation, involving 64% of Scandic employees.
At the corporate level, teams focused on inventorying repetitive procedures carried out at all Scandic hotels, in search of changes that could yield high impact throughout the system in terms of environmental quality and cost savings. Primary focus was placed on reducing and eliminating waste, as well as new product innovations that embodied TNS principles. Notable innovations include:
Soap and shampoo dispenser system . Traditional hotel soap comes in a bar wrapped individually in plasticized paper. A normal hotel guest uses approximately 15%, and the rest is thrown out. The same ratio of waste applies to shampoo and conditioner bottles. Scandic researched available dispenser systems and found none that met TNS system conditions; so they worked with suppliers to develop one. The Scandic system uses plastic (PET) dispenser bottles that are manufactured in Germany and recycled by the same supplier into new dispensers. Soap and shampoo contents are made by Ecover, a leading Belgian producer of natural products. The system has reduced annual soap and shampoo volumes by 40 tons and packaging by 11 tons, producing significant savings in operating costs.
House-keeping chemicals. Auditing revealed that 15 different cleaning products were being used in each hotel. Each product was individually packaged, had to be individually ordered and tracked in inventory, and contained chemicals with unknown impact on the environment. Scandic worked with German company Henckel Ecolab to develop an entirely new system for cleaning its hotels using environmentally benign ingredients. The new system uses concentrated cleaning substances that can be combined for different cleaning jobs, thus drastically reducing inventory and carrying costs as well as packaging waste.
Dish washing. Analyzing the kitchen with the same mindset, Scandic worked with Henkel Ecolab to adapt a system using concentrated detergent powder to reduce packaging, transportation costs, and chemical discharge. Detergent use was reduced by 25% in 1994-95. Scandic also realized that breakfast, lunch, and dinner each have different dish-cleaning requirements. It developed a dosage system for detergent calibrated to each meal, reducing powder use by an additional 14%. These changes cut detergent use by 14 tons in Sweden alone.
Laundry. Scandic worked closely with its leading laundering supplier to develop a new system for its extensive laundering needs. Chloride bleach was eliminated from the process, with oxygen bleach used as a substitute. Modified equipment with fewer wash cycles reduced water usage from 9 gallons to 1.5 gallons per unit of laundry. The resulting 17% savings in energy needed to heat water, coupled with reduced detergent and water consumption paid for the cost of the new equipment in one year. The laundry supplier is now fully committed to the new system and has achieved a competitive cost advantage over other suppliers that has helped it expand its business.
Waste management. Initial programs to reduce solid waste and improve energy efficiency were conducted at the local level, generating $11 million in cost savings during the first year. A program pioneered in Germany takes recycling to guest rooms by providing a waste basket with three different compartments, one for paper, one for organic waste, and one for metal/plastic. The program has reduced waste by 40-50%. The system is being introduced into Sweden and Denmark properties; other countries will follow as municipalities develop handling systems that can deal with sorted waste.
Energy efficiency. A system is being tested that puts a temperature sensor in the TV antenna of each room, allowing the temperature to be controlled by the front desk. Rooms not in use for the night can be "shut down" and then brought back to comfort level just prior to occupancy. The "recyclable" hotel room. Scandic renovates about 1,500 of its 16,000 hotel rooms each year, and it decided in 1994 that this investment represented a high leverage opportunity to move the chain toward sustainability. A new type of hotel room was designed along TNS principles with every aspect of the room analyzed throughout its life cycle for environmental impact.
Scandic worked with a number of suppliers to develop new, more sustainable products for the room, which is called recyclable because 97% of its materials are meant to be reused and recirculated.
The recyclable room is constructed of natural materials, relying on wood as a replacement for plastics and metals. Parquet floors replace carpet, and natural fabrics such as wool and cotton replace nylons and acrylics. All paints and wood treatments are water based. With the rooms already brought on line, Scandic estimates significant reductions in its yearly consumption of non-renewable resources:
· Metal reduced by 15 tons
· Plastic reduced by 90 tons
· Mercury reduced by 22 pounds
Scandic estimates the initial capital investment in the recyclable room runs 15-17% higher than its old room, but this is offset by savings from improved durability and efficiency that reduce total costs 30% over the life of the room (e.g. wood floors can be refinished seven times). Guest feedback has shown a marked preference for the new room design.
Top Line Effect
Aside from the cost savings generated from the process and product innovations stimulated by adopting TNS, Scandic has seen considerable impact from a marketing standpoint. Qualitative input shows employee morale and commitment, so critical to the consumer's experience of the product in a service business, has measurably improved. In-room brochures detailing Scandic's values and actions helped guests interpret the changes in a positive context and involved them in the effort.
Scandic gained significant press coverage and public awards for many of these innovations, garnering a "first mover" advantage over its competition. A brand awareness study done in February 1995, when the program was still in its infancy, showed consumer awareness of Scandic doubled to 60% from the 30% recorded in November 1994, when the program was first announced. Additionally, 15% of new conference business claimed Scandic's environmental initiatives influenced their choice of hotel.
Bottom Line Effect
While there is no way to isolate the effect of the TNS program on financial performance, overall sales for the company are up 26% from 1995 to 1997, and operating margin has increased from 3.5% to 5.2% over the same period. Scandic has also returned to profitability, reporting positive net income for the past two years. By all accounts, Scandic appears to be doing well by doing good and plans to continue evolving the program.
Ivarsson offered the following insights to companies embarking on a path to sustainability:
· TNS is an explanatory model, not an off-the-shelf program. Companies must do the work necessary to adapt the model to their unique business and culture. TNS should serve as your "internal alphabet" regarding sustainability, but you must integrate it into the language of your business.
· Show visible commitment from senior management early on. Ivarsson felt the kick-off video conversation between Nilsson and Robèrt was essential to the program's success because it showed how personally committed the CEO was to the initiative.
· Centralize communication; localize actions. Training and knowledge sharing should flow from a central point in the organization, but make the process of implementation local as soon as possible--it's too complex to control centrally. Training should empower people to create change in how they do their job. Make resources available to support local initiatives and publicize the results regularly. Scandic regularly publishes a newsletter on the program (now on e-mail) to update employees on ideas, actions, accolades, etc.
· Make visible headquarters decisions that lead and anchor local initiatives. Ivarsson felt speed and tangible impact were important in showing headquarters was committed to the program. For instance, the new soap and shampoo dispenser system was installed in 16,000 hotel rooms in just two weeks. Focus on product initiatives that render visible the company's
intentions and implement them vigorously.
· Involve suppliers early on. Ivarsson noted that Scandic's choosing him as Director of Purchasing to lead the sustainability program was not unintentional. Scandic realized early on that it could not succeed in this program without the help of its key suppliers. The company communicated its intentions early on and offered TNS training to its suppliers. It also outlined the changes it expected from each supplier and gave it specific timetables for meeting these requests. Suppliers who declined participation were notified they would be replaced. This partnership approach was highly effective and was enabled by a centralized purchasing system that allowed the company to consolidate its leverage.
· Allow standards to emerge. Ivarsson recommends companies avoid adopting externally derived performance standards at the outset of their sustainability program. Standards thatemerge from the process itself are likely to be more accurate and lasting.
"It is extremely difficult for any company to set up standards from the beginning. You need to accept that it is a process that starts with gaining knowledge, learning what to do, and then getting people moving with some simple activities. After six months we started to establish our own standards."
Scandic Implementation Chronology
February 1994--Scandic Executive Committee meets with K. H. Robèrt.
April--Environmental Policy published and Program announced.
Scandic Executive Committee undergoes TNS Training.
June--August All employees see video with Nilsson and Robèrt explaining the company's commitment to sustainability. Scandic and TNS staff develop training program adapting TNS principles to Scandic's business and culture.
Sept.-- Oct. Train the Trainer program.
November Distribute The Environmental Guide, an outline of how the project would be implemented.
Nov.--Dec. Environmental dialogue with all staff at 100 hotels throughout Europe.
December Begin coordinating Local Activity Plans.
January 1995 Launch the program to all employees and build participation in local activities.
Monthly 1995 Continued training and communication of company-wide activities & learning.
May 1995 Begin setting company-wide standards and implementing formal feedback system.
1. "The Natural Step 'Good Examples' Business Case Study Sweden" by Change the Way Pty Ltd, 1996.
2. Lectures by Brian Nattrass and Ola Ivarsson at The Natural Step Conference, Chicago, IL, May 1998.
3. Phone interview with Ola Ivarsson, August 6, 1998.
4. "Scandic Environment Program 1994-97" by Scandic Hotels.
This case study was prepared by Brian Lanahan for the Oregon Natural Step Network. further information, contact Ola Ivarsson, Director of Purchasing & Environmental Affairs, email: email@example.com or telephone: +46-8-610-50-00.